A fine mess

September 10, 2011 - Harry Eagar

The Los Angeles Times reports: "Bank of America Corp. is preparing to slash 40,000 or more jobs nationwide, a dramatic retrenchment that reflects the deepening woes of the country's largest bank and the magnitude of the U.S. economic slowdown."

It seems unlikely that Obama's jobs program will get into positive territory against this background. And, scoring politics like baseball, these job losses belong to Bush, not the Democrats.

However, it is unlikely that Obama's plan would work very well. Keynesian pump priming worked in the '30s, when make-work jobs put money into pockets where it was then spent on local productions -- food, clothing, shoes, movie tickets, beer; where that money was then spent on local suppliers of production inputs.

The connection has been broken. Make-work jobs still create purchases, buy the products are not local.

You don't hear the Republicans talking about it, but Bush tried a stimulus. It stimulated China, not America.

Most any stimulus spending will have similar effect. Even spending on roads will leak overseas -- the contractors will buy Japanese or German excavators as readily as Caterpillars.

When FDR was first persuaded to pursue a make-work program, his thought was to keep it simple, literally shovel-ready, in prder to put paychecks into the largest number of pockets. Harry Hopkins convinced him to go for efficiency, with big projects requiring machinery. He argued (as related by Rex Tugwell) that the purchases of graders etc. would put men to work on factory lines.

This worked well.

It doesn't work that way any more.

When the world and American economies are generally prosperous and expanding, the global supply network is not entirely negative, although it has had the effect of hollowing out the American working class (and the promised replacement jobs have never arrived).

Chambers of commerce have always been fond of publicity stunts (often getting in trouble with the Treasury) by marking bills to show how they circulate within and stimulate other local businesses. Oddly, although they understand this on a simple level, when the same situation is expanded they do not understand that the same monetary dynamic works on international scales.

Thus, the U.S. business community has worked hard to make itself vulnerable to downturns, while simultaneously pursuing policies (generally known as Reaganomics) that make downturns inevitable.